Not all the convertibles in our database are ranked. Of the 622 convertible bonds and preferred stocks currently in our Survey, 131 (or about 21%) are unranked. Unranked convertibles are not considered for inclusion on our Especially Recommended list. However, the absence of a rank does not necessarily mean that a convertible is a bad investment.

Investors who are bullish on a stock, but are unable or unwilling to purchase it for one reason or another, may find that a convertible issued by that company is included in The Value Line Convertibles Survey. Don’t ignore a convertible just because it is unranked. The data we provide can help investors determine the attractiveness of these unranked convertibles vis-à-vis their respective underlying common stocks. To help illustrate, we sorted our database for unranked convertibles that trade with a current yield of at least 5% and offer decent equity participation. Below is a partial list.

Common

Conv

Conv

Conv

Common

Common

Convertible Securities

Symbol

Rec Prx*

Curr Yld(%)

YTM(%)

Price

Yield(%)

NorthStar Rlty 11.5s2013(144A)

NRF

100.04

11.5

11.8

$4.93

8.1

Inst. Fin’l (Alesco Finl) 7.625s2027

IFMI

86.38

8.8

9.5

$4.71

NIL

RAIT Fin'l Tr 6.875s2027 (144A)

RAS

89.08

7.7

8.2

$2.91

NIL

CapLease 7.5s2027 (144A)

LSE

99.00

7.6

7.7

$5.69

NIL

NorthStar Rlty 7.25s2027 (144A)

NRF

99.75

7.3

7.4

$4.93

8.1

KKR Fin Holdings 7s2012 (144A)

KFN

104.15

6.7

4.1

$10.47

4.6

Spansion 2.25s2016 (144A)

SPSN

38.38

5.9

24.0

$0.01

NIL

MPW(MPT Oper) 6.125s2011 (144A)

MPW

103.44

5.9

1.6

$11.09

7.2

Sino-Forest 5s2013 (144A)

TRE C

90.00

5.6

9.9

$9.76

NIL

Lexington Master 5.45s27 (144A)

LXP

100.69

5.4

5.5

$9.23

4.3

Selected Convertible Profiles:

Founded in 1991, the New York-based Lexington Realty Trust (LXP) is a self-managed, self-administered real estate investment trust (REIT). It acquires, owns, and manages a portfolio of office, industrial, and retail properties net-leased to corporate tenants in the United States. The company also provides investment advisory and asset management services to institutional investors in the net lease area.

Although common shareholders get preference in regard to dividend distribution, the Lexington Master 5.45% convertible notes due 2027 have a 1.2% current yield advantage over the common, and are favorably leveraged to participate positively in the activities of the common. (That means that the convertible will participate in the upside of the common, but fall to a lesser degree if the stock starts faltering.) Note that it is possible that the current yield advantage will gradually disappear, if the common dividends increase, but the convertible offers safety, price stability, and is putable. In fact, the “put” option shortens the bond’s maturity, potentially increasing the attractiveness of the yield.

Institutional Financial Markets (formerly Cohen & Company) (IFMI) is a publicly owned investment management company that manages fixed-income portfolios for individual and institutional clients. The company also manages funds, collateralized debt obligations, and invests and operates in investment management companies across the globe. Its fixed-income investments include mortgage-backed securities and asset-backed securities, U.S. trust preferred securities, European hybrid capital securities, and Asian commercial real estate debt. The company was founded in 1999 and is based in Philadelphia, Pennsylvania.

The Alesco Financial 7.625% convertible notes due 2027 convert into common shares of Institutional Financial Markets. With a 109% premium over conversion value, the notes offer virtually no upside participation in the underlying common stock. However, downside protection is solid. In addition, the notes offer a 4.9% current yield advantage over the common, and are call protected until May 20, 2012. They are also putable on that date for a yield to put of 21.6%.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.